Currency said to face regulation after LIBOR review

Bloomberg

Global regulators may start overseeing currency rates in a widening response to benchmark-rate setting scandals that began with revelations on the manipulation of the London interbank offered rate (LIBOR), two people familiar with the matter said.

The International Organization of Securities Commissions, a Madrid-based group known as IOSCO that harmonizes market rules, may propose final guidelines improving transparency and oversight of benchmarks, as soon as next month, said the people, who asked not to be named because the talks are not finalized.

The UK Financial Conduct Authority (FCA), which oversees markets and prosecutes financial crime, is looking into potential manipulation in the US$4.7 trillion-a-day foreign-exchange market after being contacted by a whistle-blower in March.

The regulator has sent requests for information to four banks, including Deutsche Bank AG and Citigroup Inc, one of the people said.

“All benchmarks share similar vulnerabilities so there is a need for a framework that applies to all benchmarks to ensure their integrity and restore market confidence,” Chantal Hughes, a spokeswoman for EU Financial Services Commissioner Michel Barnier, said in an e-mailed statement.

“We will also be making a proposal this summer on the framework for benchmarks,” she said.

FCA chief executive officer Martin Wheatley has already taken on oversight of LIBOR after his review of how the rate is set.

Sebastian Howell, a spokesman for Deutsche Bank, and Jeffrey French, a spokesman for Citigroup, declined to comment on the FCA requests.

IOSCO proposed in January that rates used in “currency markets, which can be represented by specific or aggregate benchmarks,” be subject to regular audits, stricter oversight from regulators and a code of conduct for submitters.

The currency market, the biggest in the financial system, is one of the least regulated as it takes place away from exchanges.

Traders colluded with counterparts at other firms to boost chances of moving the WM/Reuters rates, according two people with knowledge of the manipulation.

The data are collected and distributed by World Markets Co, a unit of Boston-based State Street Corp, and Thomson Reuters Corp.

Bloomberg LP, the parent company of Bloomberg News, competes with New York-based Thomson Reuters in providing news and information, as well as currency-trading systems and pricing data.

“The process for capturing this information and calculating the spot fixings is automated and anonymous, and the rates are monitored for quality and accuracy,” State Street said in an e-mailed statement.

The data are derived from “multiple execution venues through a streaming rather than solicitation process,” the company said.

Spot foreign-exchange transactions are not considered financial instruments in the same way as stocks and bonds.

They fall outside the EU’s Markets in Financial Instruments Directive, which requires dealers to take all reasonable steps to ensure the best possible results for their clients.

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